2011 (1) TMI 1214 - AT - Income Tax

Tribunal denies stay petition, directs expedited hearing, stresses timely resolution

Monsanto Holdings (P.) Ltd. Versus Deputy Commissioner of Income-tax, Range 8(2), Mumbai

The Tribunal denied the stay petition due to lack of a prima facie case and failure to demonstrate financial hardship. The Assessing Officer did not ... Dispute Resolution Panel Issues:Stay of demand subsequent to assessment for assessment year 2006-07 due to Transfer Pricing (TP) adjustment and disallowance of research and development expenses.Analysis:The stay petition was filed by the assessee seeking a stay of demand arising from a TP adjustment of Rs. 9.86 crores and an addition of Rs. 1,03,54,937 for disallowance of research and development expenses for the assessment year 2006-07. The total demand amounted to Rs. 2,72,65,238, including interest under section 234B of the Income-tax Act. The assessee had paid a partial sum against the demand, leaving a balance outstanding. The assessee contended that the Transfer Pricing Officer (TPO) made adjustments using Transactional Net Margin Method (TNMM) instead of the Resale Price Method (RPM) applied by the assessee. The Dispute Resolution Panel (DRP) directed the TPO to re-examine the RPM based on audited accounts, which were now available. However, the TPO did not follow the DRP's direction, leading to the same adjustment being made in the assessment order. Regarding the research and development expenses, the Assessing Officer disallowed them as capital expenditure, but the DRP directed their examination to allow if related to the business. The Assessing Officer did not comply with the DRP's direction, resulting in the same addition. The assessee argued for a stay of demand, citing a prima facie case, but failed to demonstrate financial hardship.The Learned DR opposed the stay petition, arguing against a prima facie case or financial hardship. It was highlighted that the RPM was not applied due to the assessee's failure to provide financial accounts of comparable cases. Regarding research and development expenses, the Assessing Officer found them irrelevant to the assessee's business of processing and marketing vegetable seeds, leading to their disallowance. The DR contended that the stay petition should be rejected.Upon careful consideration of the contentions, the Tribunal observed that the TP adjustment and research and development expense disallowance were the key issues. The DRP's direction to apply RPM after receiving audited accounts was not followed by the Assessing Officer, who insisted on actual profit margin details. The Assessing Officer also deemed the research and development expenses unrelated to the assessee's business, contrary to the DRP's directive. The Tribunal found no prima facie case in favor of the assessee, emphasizing that a detailed examination was necessary. Citing the Supreme Court's precedent, the Tribunal noted that a prima facie case alone was insufficient for a stay, and no financial hardship was demonstrated by the assessee. Consequently, the Tribunal rejected the stay petition, directing the assessee to pay a specified sum by a certain date for an expedited appeal hearing.In conclusion, the Tribunal denied the stay petition, emphasizing the need for a detailed examination of the case and the absence of financial hardship. The decision was based on the legal principle that a prima facie case must be accompanied by considerations of balance of convenience and public interest. The Tribunal's directive for an expedited appeal hearing underscored the importance of timely resolution in the interest of justice.